What Is the Main Limitation of the Black-Scholes Model?

The main limitation of the Black-Scholes model is its set of simplifying assumptions that do not hold true in the real world. Crucially, it assumes that volatility is constant over the option's life, which is contradicted by the "volatility smile" observed in the market.

It also assumes continuous trading, no transaction costs, and that asset prices follow a log-normal distribution, which ignores the possibility of sudden, large price jumps.